As the Baby Boom Generation Reaches Retirement Age What Can Be Expected of Its Effect on the Economy

For decades, the retirement of the baby nail generation has been a looming economic threat. Now, it's no longer looming — it'south here. Every month, more than a quarter-meg Americans turn 65. That's a trend with profound economic consequences. Simply put, retirees don't contribute as much to the economic system as workers do. They don't produce anything, at least directly. They don't spend as much on average. And they're much more probable to depend on others — the regime or their own children, most often — than to support themselves.

The recession may accept delayed the inevitable for a fourth dimension. The financial crunch wiped away billions in retirement savings, forcing many Americans to piece of work longer than planned. But the stock market has since rebounded, and in that location are signs that more Americans are at concluding feeling confident enough to go out the workforce. The labor forcefulness participation rate for older Americans — the share of those 55 and older who are working or actively looking for work — has fallen over the past year afterward rising through the recession and early on years of the recovery. Roughly 17 percent of baby boomers now report that they are retired, upward from 10 percent in 2010.¹

Now that the wave has begun, nothing is likely to cease it. The Demography Bureau on Tuesday released a pair of reports that prove just how dramatic an touch the graying of the population will have in coming decades.

About a quarter of Americans were born between 1946 and 1964, the typical definition of the baby boom generation. That's more 75 million people. In their heyday, the boomers were an unprecedented economical force, pushing upwards rates of homeownership, consumer spending and, nearly of import of all, employment. It's no coincidence that the U.S. labor force participation rate — the share of the adult population that has a job or is trying to discover one — striking a tape high in the late 1990s, when the boomers were at the acme of their working lives.

It's been downhill always since. The participation rate hit a 36-year low last calendar month, and while at that place are multiple reasons for the pass up, the aging of the baby blast generation is a dominant gene. In 2003, 82 per centum of boomers were function of the labor force; a decade afterwards, that number has declined to 66 percent, and information technology will only go along to fall.

All else equal, fewer workers means less economical growth. One way to measure this is a figure known equally the "dependency ratio," or the number of people outside of working age (under xviii or over 64) per 100 adults between age 18 and 64.^two The higher the ratio, the worse the news: If more of the population is young or one-time that leaves fewer working-age people to support them and contribute to the economy.

The U.South. dependency ratio has been improving in recent decades, falling from 65 in 1980 to 61 in 2000 to 59 in 2010. Merely now the trend is set to reverse. Past 2020, the Census Bureau estimates, the U.S. dependency ratio will be back to 65; in 2030, it volition be 75, the worst since the 1960s and 1970s, when the infant boomers were children.

The dependency ratio is a blunt instrument. Not everyone retires the day they plow 65; indeed, as lifespans lengthen (and pensions reject), more than people are working later in life. But simply upwardly to a point: Plenty of people work past 65; few piece of work past 85.^three It will be a while withal before infant boomers offset turning 85, but more of them will go there than any previous generation. By 2050, more than than four pct of the population will exist at to the lowest degree 85 years old, more than than double today's figure.^four

As bad as the U.South. demographics look, things are worse in much of the world. The U.S. has fewer residents over 65, as a share of its population, than most adult countries, and the disparity will merely grow in coming decades. In 2050, near 21 percentage of the U.Southward. population volition be 65 or older compared to more than 30 percent in much of Western Europe and an incredible 40 percent in Japan. China, as a result of its "ane child" policy, faces its own, somewhat different, demographic crisis.

One reason the U.Southward. is in better shape is its comparatively high charge per unit of immigration. Since people tend to migrate when they are younger, immigrants tend to bring down the age of the population as a whole. Moreover, at least in the U.South., immigrants tend to have a college nascency rate than the native-born population, although the gap has narrowed somewhat in recent years. The future direction of immigration, therefore, makes a big divergence to the age breakdown of the U.Southward. population. The Demography Bureau's demographic estimates are based on a middle-of-the-route project of hereafter immigration, but the bureau also publishes alternative scenarios. In the "high immigration" scenario, the U.S. has virtually 22 million more working-age residents in 2050 than in the "low immigration" case.

The U.Due south. also has some other trend working in its favor: Infant boomers are retiring simply as their children — sometimes known equally the "echo boomers" — are inbound their prime number working years. Boomers are no longer even the largest age cohort; more of today's Americans were born in the 1980s and 1990s than in the postwar years. As today's teens and 20-somethings enter the workforce, they will partly first their parents' exit. Indeed, for many young people, mom and dad can't retire soon plenty; some experts argue that boomers, by staying in the workforce longer than past generations, are essentially clogging the usual professional pathways, leaving few opportunities for people outset their careers.

Thank you in part to the echo boomers, the dependency ratio will flatten out past about 2030. Not that long thereafter, the oldest of the repeat boomers will brainstorm entering their ain retirement years, and the cycle will begin anew.

Footnotes

1. Total-yr estimates are based on Electric current Population Survey microdata.

2. This is the Census Bureau's definition. Other agencies utilise unlike historic period cutoffs. The World Bank, for instance, defines "working historic period" more broadly, every bit those between 16 and 65.

3. The employment-to-population ratio for Americans 65 and upwards was 17.7 per centum in 2013. For those 85 and up, it was 3.five percent, according to Current Population Survey data.

4. The ascension over-85 population is partly the upshot of the sheer size of the baby smash generation, but it is besides the result of increased life expectancy.

Ben Casselman was a senior editor and the master economics writer for FiveThirtyEight. @bencasselman

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